The deep freeze on tax thresholds will cost taxpayers billions of pounds more than initially expected, new analysis has revealed, because of the impact of soaring inflation.
The Prime Minister’s decision not to increase income tax bands with inflation will cost taxpayers an estimated £78n in extra tax between 2022 and 2028. The analysis, which was carried out by the Centre for Economics and Business Research, found that Mr Sunak’s decision to freeze income tax thresholds in March 2021 while he was Chancellor is costing taxpayers far more than initially forecast. Four million taxpayers will be dragged into higher income tax bands by 2028, the report said.
The Office for Budget Responsibility originally predicted the freeze would cost taxpayers £1.6bn in 2022-23 and £3.7bn in 2023-24. In March 2022 the OBR updated these forecasts to £2.9bn and £10.4bn, to account for rising inflation. But CEBR estimates the tax take will be considerably higher, with additional tax receipts for the 2022-23 and 2023-24 financial years expected to hit £4.7bn and £17.6bn respectively, due to high wage inflation.
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